Stocks close higher on China stimulus; earnings eyed

U.S. stocks closed sharply higher on Monday amid an unexpected stimulus from China’s central bank as investors kept eyeing corporate earnings.

“We’re looking at a bounce because of options expiration on Friday and China’s stimulus,” said Peter Cardillo, chief market economist at Rockwell Global Capital. “The move this morning is technical, and because it is technical I’m cautious.”

On Sunday, China’s central bank lowered the reserve requirement ratio for all banks by 100 basis points.

The wider-than-expected cut was the People’s Bank of China’s second reduction in two months, and marks a continuing effort by the world’s second-largest economy to combat slowing growth.

“I’m completely fascinated by how we change topics every day,” said Kim Forrest, senior equity analyst at Fort Pitt Capital. “On Friday we were concerned about Greece. Today, we’re concerned about China.”

The Nasdaq led all major indexes after posting its best day since February 10. The index closed up 62.79 points, or 1.27 percent, at 4,994.60 as Facebook shares soared 2.87 percent, their best one-day performance since February 19.

The Dow Jones Industrial Average, led by shares of IBM, had its best day since March 30 after closing up 208.30 points or, 1.17 percent, at 18,034.60. The index also rose as much as 266 points during the session.

The S&P 500 closed up 19.10 points, or 0.92 percent, at 2,100.28, led by Information Technology and Utilities. The index is now less than 1 percent away from its all-time intraday high of 2,119.59.

Nevertheless, Peter Boockvar, chief market analyst at The Lindsey Group, said “it’s all about earnings this week.”

Of the 59 S&P 500 companies that had reported by last week, 75 percent had topped profit expectations, above the 70 percent average for the last four quarters, according to Thompson Reuters. However, only 45 percent of companies beat revenues estimates, compared with 58 percent in the last four quarters.

Several companies posted quarterly earnings report Monday morning, including Morgan Stanley, Hasbro, Halliburton and SunTrust. IBM will deliver quarterly results after the bell.

Morgan Stanley earned an adjusted 85 cents per share, beating estimates of 78 cents, with revenue also above forecasts. Morgan Stanley’s results were helped in part by better than expected performance in investment management and fixed income.

Hasbro reported quarterly profit of 21 cents per share, swamping estimates of eight cents, with revenue also beating forecasts by a wide margin despite the negative impact of the strong dollar. Hasbro saw particularly strong performance in its Transformers and pre-school units. The company’s shares also hit an all-time high.

Halliburton also beat estimates by 12 cents with adjusted quarterly profit of 49 cents per share, with revenue scoring a slight beat as well. But Halliburton does say it expects the oil sector to remain “challenged”.

SunTrust earned 78 cents per share for its latest quarter, six cents above estimates, with revenue essentially in line. SunTrust was helped by lower expenses, and growth in noninterest income.

William Dudley, president of the New York Federal Reserve Bank, also delivered remarks on Monday in which he said economic performance will be the determining factor on when the central bank will raise rates.

“Whether they raise rates in June, October or December, it doesn’t matter.” said Maris Ogg, president at Tower Bridge Advisors. This is so because, whenever the central bank does decide to lift rates, it will be because it believes the economy is strong enough to handle it, she added.

Investors also kept an eye on negotiations between Greece and the euro zone. “With respect to Greece, both sides went back and forth over the weekend with no progress. The Greek Finance Minister is threatening the EU with the chaos that would envelope if Greece left the euro but at the same time is just expecting to get more money with almost no conditions attached,” Boockvar said in a note.

Another element being eyed by investors is the oil sector, said Art Hogan, chief market strategist at Wunderlich Securities. “I think we’ve found a bottom in the energy sector, at least in the near-term.”

WTI futures settled up 64 cents, or 1.2 percent at $56.38 per barrel on Monday.

Forrest added there are two reasons for higher oil prices. One of these is the lower rig counts, which have to investors foreseeing less oil coming in the second half of 2015, and the other consists of the “anticipation of a stronger China.”

DJIA Dow Jones Industrial Average 18034.93 208.63 1.17%
S&P 500 S&P 500 Index 2100.40 19.22 0.92%
NASDAQ Nasdaq Composite Index 4994.60 62.79 1.27%

Advancers led decliners three to one on the New York Stock Exchange with an exchange volume of 683.40 million and a composite volume of 2.95 billion.

The benchmark U.S. 10-Year yield traded around 1.88 percent.

Gold settled down about $9.40 at $1,193.70.

The dollar index, which measures the greenback’s performance against a basket of currencies, rose about 0.4 percent to 97.92. The euro traded lower against the dollar at about $1.07.

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